What happened
Shares of West Fraser Timber (WFG 0.24%), a wood products company with a global footprint, rose dramatically at the open of trading on Tuesday, with the stock gaining nearly 24% at one point in the first hour of trading. By roughly 10:30 a.m. ET today, however, the advance had been trimmed to a still-notable 18% or so. The big news was an acquisition rumor.
So what
According to Reuters, West Fraser has received an unsolicited takeover offer from private equity firm CVC Capital Partners and Kronospan, a maker of wood panels and similar products. There were no details provided about a potential price. But investors are clearly excited by the prospects of a deal, given the huge price gain. The expectation is that a notable premium will be required to get a deal done.
At this point, it doesn't appear that any of the related parties are talking about what could be taking place here. So this is really just a rumor at this point. As such, there is no way to handicap the potential for a deal or what form it might take. Investors are really just reacting based on emotion.
Now what
FOMO (or the fear of missing out) is a notable factor on Wall Street, as investors are always looking for a way to make a quick buck. Acquisition rumors are one place where this shows up on a regular basis. Even if the current news about West Fraser is true, it could be days, weeks, or even months before a deal is agreed to, and there's no way to know if a premium price will be offered, let alone one as large as 24%.
With the stock up so much, which already factors in a premium-priced takeover, most investors should probably wait for more-concrete evidence before making a call here.